Health Net punished for lying about contract cancellation bonuses

"If they can mislead the Department of Managed Health Care, can you imagine how misleading they can be to their policyholders?"...State regulators fined WellPoint Inc., the parent of Blue Cross of California, $1.2 million and Kaiser Permanente $325,000 for improperly canceling policies. Investigations continue for Kaiser, Health Net, PacifiCare and Blue Shield of California.

Health Net punished for lying about contract cancellation bonuses
Victoria Colliver
San Francisco Chronicle Staff Writer
November 16, 2007

State health regulators fined Health Net Inc. $1 million Thursday for lying to investigators about paying employees bonuses based on the number of contracts they canceled after those policyholders got sick.

The penalty was the first levied on a health insurer for withholding information about incentives given to its employees.

Health Net, along with other major health insurers, is being investigated for combing through applications of members after they have filed claims to find mistakes or omissions that would justify revoking policies. Insurers say they resort to rescinding policies only when members lie about their health histories, but consumers say the questionnaires often are vague and misleading.

As part of the investigation, state regulators asked Health Net officials on two separate occasions whether the company gave financial bonuses to its employees for rescinding policies. State law prohibits tying compensation to claims decisions. Both times, plan officials denied doing so.

"The health plans say they have to rely on applicants being truthful and fully disclosing their medical conditions. And if they aren't truthful, there are very hard consequences," said Cindy Ehnes, head of the state Department of Managed Health Care. "As a regulator, I have to rely on that same truthfulness and full disclosure by the companies we regulate."

The company's practices came to light last week when a Southern California judge allowed documents to be made public that showed a Health Net analyst received more than $21,000 in bonuses from 2000 to 2006, based at least partly on meeting or exceeding the company's rescission goals. Health Net claimed to have saved $35.5 million in "unnecessary" care for rescinding more than 1,000 policies during that time frame, documents showed.

Health Net executives apologized Thursday for "any misunderstanding" with the state regulators. The company, based in Woodland Hills (Los Angeles County), accepted a consent agreement and promised to stop compensation practices linked to rescission.

The documents were submitted in an arbitration hearing involving Patsy Bates, a 51-year-old hairdresser from Gardena (Los Angeles County), who is suing Health Net for $6 million plus punitive damages for canceling her policy after she was diagnosed with breast cancer. The company said she lied about her weight and failed to disclose a heart condition.

Claremont attorney William Shernoff, who is representing Bates, called the fine appropriate.

"If they can mislead the Department of Managed Health Care, can you imagine how misleading they can be to their policyholders?" Shernoff said. The hearing in Rancho Cucamonga (San Bernardino County) is expected to conclude Friday.

State regulators fined WellPoint Inc., the parent of Blue Cross of California, $1.2 million and Kaiser Permanente $325,000 for improperly canceling policies. Investigations continue for Kaiser, Health Net, PacifiCare and Blue Shield of California.